Exploring New Industries & Diversification to Drive Korean Economy amid Low Global Economic Growth
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Exploring New Industries & Diversification to Drive Korean Economy amid Low Global Economic Growth
By Park Jong-sun, a former professor with Jeonju University

22(Tue), Feb, 2022

By Park Jong-sun, a former professor with Jeonju University and ex-Korean consulate general in Qingtao, China.

The global economy posted a high growth rate of 5.5 percent, as each country around the world employed expansionary fiscal and currency policies to overcome crises caused by the COVID-19 pandemic. Korea achieved a 4 percent economic growth rate. 

The global economy is predicted to grow 4.1 percent this year, lower than last year, due to imbalances, and real estate and asset bubbles caused by last year’s expansionary fiscal and currency policies. 

Interest rate hikes are also expected to take a bite out of growth, as inflationary pressure rises amidst record high global debt of 226 trillion won. 

The Korean economy is forecast to grow 3 percent lower than last year because of declining exports and trade balance surplus, influenced by the sagging global economy and inflation. 

But the nation needs to prepare for the possibility of a full recovery in the global economy on the back of waning danger posed by variants of the coronavirus and the spread of vaccines, health and economic policy changes, debt management of the poorest countries and stepped-up global collaboration. 

Korean export dependence on China further rose to 25.3 percent last year, meaning there was a also positive effect as Korea benefited from China’s economic growth. 

On the other hand, it is a risky situation in which Chinese economic policies and risks could roil the Korean economy. 

Korea’s dependence on China could have an unfavorable impact on the stability of the Korean economy. Korea has to reduce its dependence on China, explore value-added new industries, and create an environment to depart from low growth by improving productivity and ironing out differentiation strategies. 

Export and import items, as well as Korea’s overseas foreign direct investments need to be expanded and diversified. 

The Chinese economy grew 8.1 percent, surpassing last year’s goal of 6 percent, but the growth rate for 2021 Q4 was lowered to 4 percent. 

Major Chinese research institutes predict a 5.1 percent growth rate this year, but foreign counterparts forecast a 4.8 percent growth.

China, mindful of the cooling economy, lowered the reserve requirement ratio last December and continued pump-priming by lowering benchmark interest rates for the second straight month and taking steps to boost spending.
China’s declining economic growth rate was attributed to the government’s corporate restrictions, a dwindling population with a birth rate of 0.75 percent, curbed corporate investments, restrictions against tech companies like Alibaba, and the curtailing of private education. 

China is to hold the 20th Party Congress in late October, in which Chinese President Xi Jinping will be reelected for his 3rd term. 

Chinese leadership will aggressively come up with projects to build infrastructure and policies to boost domestic demand, since China has to achieve a 5 percent economic growth rate to prevent an unemployment crisis. 

The United States is forecast to raise interest rates on three to four occasions to tame a high inflationary growth rate in the range of 7 percent, and boost its growth rate by expanding investment in infrastructure. 

The United States is expected to raise the benchmark interest rate by 0.5 percentage points in March as the interest rate of two-year U.S. government bonds topped 1 percent and that of 10-year U.S. government bonds soared to 1.89 percent. 

The United States and China will continue bilateral dialogues and cooperation amid confrontation and conflicts to secure global hegemony.

Korea is stuck in the middle of the U.S.-China rivalry. It is not a case of choosing either side. Korea will have to clearly set its state policies in accordance with the spirit of the Constitution and come up with policies suiting its national interests. 

The so-called pro-U.S. security policy and pro-China economic policy brings about too many hurdles in a realistic perspective. 

Both the United States and China are important countries for us. The nation needs to maintain diplomatic communications with the two global powers while flexibly communicating and coping with Europe and Japan. 

In this perspective, Korea needs to adopt a creative, strategic, advanced diplomatic strategy. 

Households, companies and the government will have to hold a trilateral partnership on a systematic fashion to raise the economic growth rate by making the most of the accelerated digital transformation, caused by the pandemic. 

Korea ranks 10th in terms of economic size, and places 8th in the world in terms of trade volume. 

The nation will have to explore new industries and raise its economic growth rate through the improving of productivity in order to overcome her dependence over overseas trade, exacerbating inequality and low economic growth. 

To this end, it is urgently required to work out hopeful, new future policies based on the private sector’s creativity, not government-initiated initiatives, spurring dynamic momentum, deregulation, a soft-landing of the real estate market, expanding of domestic demand through expediting spending, and the creation of a business friendly environment and a solidarity society, in which companies and households can join forces to work in a spirited fashion. 

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